Secure Vault Payments, the alternative payment system that lets consumers make online purchases directly from their bank accounts, may gain new prominence from a test it is running with a sizable client.
FamilySearch International, a Salt Lake City nonprofit that provides genealogical information and is run by the Church of Jesus Christ of Latter-day Saints, is testing Secure Vault. FamilySearch was referred by U.S. Bancorp, which has been testing Secure Vault since last year.
Teaming up with one of the nation's largest religious organizations could be the shot in the arm that Secure Vault needs to develop a bigger audience. Banks are evaluating new payment types to reach consumers who don't have credit or debit cards or who do not want to enter their card information online. Banks are also looking at alternative payments as a new source of revenue in a regulatory environment where interchange rates are set to fall.
"Given what is going on in the cards market, banks are taking notice of … e-commerce wallets, and they are looking at how to create alternative revenue sources online," said Zil Bareisis, a senior analyst with Celent.
Consumers may also favor Secure Vault for providing an alternative to typing in card numbers online, something many people are reluctant to do out of security concerns.
"The Mormon church is a big organization, and that is what you want in order to prove that payments are secure," said Stessa Cohen, research director of banking industry advisory services at Gartner Inc.
Mary Burchette, U.S. Bancorp's senior vice president for treasury management, said Secure Vault is also an attractive option for corporate customers because it provides them with a payment form that, since it rides on the automated clearing house network, costs less than credit and debit cards.
"We want to provide our business customers with whatever payment type they want to collect," she said.
FamilySearch is a corporate client of U.S. Bancorp and the first the Minneapolis bank has signed up for Secure Vault.
Burchette said the bank is in talks with other prospective Secure Vault users.
FamilySearch allows consumers who research their family histories through its archive, which is one of the world's biggest sources of genealogical information, to make donations through its website. U.S. Bancorp signed on in late 2010 for Secure Vault, a service of Nacha, the electronic payments association.
The pilot program will run for an unspecified period of time, U.S. Bancorp said.
Bareisis said Nacha's system faces an uphill battle in the U.S. because credit and debit cards are so entrenched. By contrast, in the Netherlands, a system called iDeal, which is similar to Secure Vault, has operated effectively for years and now accounts for 50% of online purchases in the Netherlands.
Banks that are connected to the Nacha system must enroll merchants and have them put the Secure Vault option on their websites' checkout page. When consumers click on Secure Vault, they are redirected to their bank's website, where they are logged in to a payment page that has a summary of the charges they are about to make. Once buyers approve the payment, it is sent by ACH.
"A huge value to the banks is that they are already originating and receiving ACH transactions, and they are already offering Web banking to their customers," said George Throckmorton, senior director of payment solutions technology for Nacha.
Throckmorton said that two sectors have naturally gravitated toward Secure Vault in its pilots, which have been ongoing for the past two years. These are nonprofits, such as Family Search, and educational institutions. The University of Georgia has been using Secure Vault in pilot since 2009, Nacha said, using Synovus Financial Corp. of Columbus, Ga., as the sponsoring bank.
Such institutions, unlike commercial merchants, are often ill-equipped to handle payments, and thus have a strong interest in making sure their payments are secure.
About 40 banks and credit unions offer Secure Vault today, although they are primarily banks under the Synovus umbrella. Half a dozen banks not affiliated with Synovus also participate, including the Savings Bank of Maine, and Avidia Bank of Hudson, Mass., which joined the Secure Vault network in December.
To make a payment with Secure Vault, a consumer must be a customer of one of the banks the system works with.
Some analysts doubt that even the FamilySearch example would boost Secure Vault.
"A lot of companies have tried to crack this nut, and in order to do that effectively, they must set up an alternative network," said Julie Conroy McNelley, a senior risk and fraud analyst for Aite Group LLC in Boston. More often than not, alternative networks do not attract significant consumer adoption, she said.
"Consumers are happy and comfortable using credit cards and they need a significant incentive to migrate to unfamiliar forms of behavior," McNelley said.
FamilySearch has 4,600 locations where consumers can research their family histories at no charge, but these locations are not equipped to take the donations people offer to make. FamilySearch also charges for the costs of postage related to the shipment of archived information.
"People will pay a small fee for shipping and handling," said Paul Nauta, a spokesman for FamilySearch. "And we always get requests from people who are touched by the charity that FamilySearch offers, and they ask if they can give back through a donation."
Nauta said two other reasons FamilySearch decided to test Secure Vault were a desire for enhanced security online and the cheaper cost of using the ACH network.
McNelley said the current regulatory environment has thrust all alternative payments providers into a new and unknown world. Because their business models are based on being lower-cost alternatives to cards, they must now prove themselves with interchange set to come down.
"The driver here is the lower cost to conduct ACH," McNelley said. "But in the post-Durbin environment, it isn't necessarily going to be such an important driver." If the cost of debit interchange goes down for merchants, she said, they already have a proven mechanism in credit and debit cards.
However, an added incentive for merchants to use Secure Vault is that they are assured payment by the banks.
"It provides them with guaranteed payment," Burchette said. If the account holder does not have enough funds to pay, she said, the transaction is declined. That is different from normal ACH transactions, where a merchant collects the checking account information and then sends the request for a debit. With Secure Vault, the payment is pushed as a credit, she said.
EWise Systems USA Inc. of Denver, the platform provider for Secure Vault, said its conversations with merchants similarly indicated the certainty of payment via Secure Vault was attractive to them. "The vast majority of merchants and billers talking to us say a driving force for Secure Vault is the certainty of payment in real time," said Alex Grinberg, eWise's chief executive.
